In the complex world of transportation and logistics, effective financial management can mean the difference between thriving and barely surviving. A recent episode of the Best Metrics podcast featured Dan Rutherford, a veteran with over three decades of experience in transportation finance, offering valuable insights for Certified Public Accountants (CPAs) serving this volatile industry.
Dan, who has steered one company to over $225 million in revenue and another to a 350% profitability growth, currently leads the Transportation and Logistics Division at Summit Virtual CPA Group, a part of Anders CPA Group. Anders, one of the top 75 CPA firms nationwide, boasts around 400 employees and 135 CPAs, with Summit's virtual CFO wing comprising about 80 people.
Dan emphasizes that financial success begins with a solid foundation in Generally Accepted Accounting Principles (GAAP). "If you don't have good financials and you're not recording your financials according to generally accepted accounting principles (GAAP) then you're going to get bad information," Dan warns.
Proper expense categorization is crucial, particularly regarding the cost of goods sold, labor costs, and operating expenses. "In transportation, you're only working on a few percent profit margin," he explains. "So if you get off on one of those buckets, then your margins are going to slip really quickly."
Key metrics to focus on include:
Dan notes, "One of the big macro ones that I think is overlooked in transportation is return on assets... It tells how well you're utilizing the assets you've got in place."
Maintaining healthy cash flow is essential in transportation. Dan advises looking at key performance indicators weekly, if not daily. "Money's coming in and going out the door every day," he says. "Every day, every hour, you know, fuel is going out the door, repairs are being done."
Key liquidity management strategies include:
Dan recommends tracking Days Sales Outstanding (DSO) from shipment delivery to payment, not just from invoicing. He suggests a target of around 40 days for DSO.
The transportation industry faces several challenges, including driver shortages, equipment costs, and market volatility. Dan notes that many companies are holding off on purchasing new equipment due to high interest rates and unfavorable market conditions. "Trucking company is kind of holding off on my equipment because the rates are higher," he explains.
Managing idle time is another critical factor. "Some guys, if they don't have a APU (auxilary power unit) on the truck, they'll just idle the truck nonstop," Dan says. This can significantly impact fuel costs and overall profitability.
To address these challenges, Dan recommends a structured approach to financial management:
"Our preference is to every week we're in front of the client and we're always communicating with them," Dan shares. "We want them to be reaching out to us, you know, every week giving us a heads up."
While Dan is cautious about making economic predictions, he does track industry indicators. He mentions the "diffusion indicator," which shows what shippers think rates will do. Recent upticks in this indicator suggest potential market improvements.
"I'm an eternal optimist," Dan says. "When I start seeing rates ticking back up a little bit, um, not substantially, but enough to get out of the weeds a little bit... it doesn't take much to turn where capacity is really tight."
In the fast-paced world of transportation and logistics, financial management is about steering companies toward sustainable success. By mastering industry-specific metrics, implementing effective liquidity management strategies, and staying ahead of market trends, CPAs can help their clients navigate the twists and turns of this dynamic industry.
Dan Rutherford can be reached at drutherford@anderscpa.com if you want to learn more. And be sure to listen to the full episode of the Best Metrics podcast.